You are on page 1of 3

Lender of Last Resort

As the supreme bank of the country and the bankers' bank, the central bank acts as the
lender of the last resort. In other words, in case the commercial banks are not able to meet
their financial requirements from other sources, they can, as a last resort, approach the
central bank for financial accommodation. The central bank provides financial
accommodation to the commercial banks by rediscounting their eligible securities and
exchange bills.
The main advantages of the central bank's functioning as the lender of the last
resort are:
(i) It increases the elasticity and liquidity of the whole credit structure of the economy.
(ii) It enables the commercial banks to carry on their activities even with their limited
cash reserves.
(iii) It provides financial help to the commercial banks in times of emergency.
(iv) It enables the central bank to exercise its control over banking system of the country.

Clearing Agent
As the custodian of the cash reserves of the commercial banks, the central bank acts as
the clearing house for these banks. Since all banks have their accounts with the central
bank, the central bank can easily settle the claims of various banks against each other
with least use of cash. The clearing house function of the central bank has the following
(i) It economies the use of cash by banks while settling their claims and counter-claims.
(ii) It reduces the withdrawals of cash and these enable the commercial banks to create
credit on a large scale.
(iii) It keeps the central bank fully informed about the liquidity position of the
commercial banks.

 Central Bank’s activity as a banker of state
As the banker to the state, the central bank conducts the banking accounts of government
departments, boards and enterprise. Providing the government with short term loans and
advances is an important banking service rendered by the central bank.

When the commercial have exhausted their own resources and have failed to supplement their funds from the usual outside resources. Maintenance of government Fund: all the balances of government of country are kept with the central bank. Collection and transfer of money: Central bank discount the government treasury bills either directly or when presented by other bank.’s banking transactions took place through this institution. central bank maintain the relationship with IMF. v. Maintain the relationship with other foreign bank: on behalf of government. Lender of last resort: the central bank is the last resort to the commercial bank.Now we like to explain the role of central bank as the banker of the state – i. Loan issue and its supervision : Central bank is often entrusted with the management of public debt and the issue of new loans and treasure bills on behalf of the government. On this balances. Custodian of the cash reserves of commercial bank: the practice of the commercial banks of keeping their cash reserves with the central bank developed slowly.: central bank acts as an advisor and agent of government. the role of the central bank as a banker to the state is likely to diminish rather than increase with redefined and somewhat reduced role of government in the economy. iv.  Central Bank’s activity as a banker of other bank As a banker’s bank the central bank extends financial facilities to commercial banks in time of emergencies. ADB. the central bank acts as a banker’s bank in three capacities: i. ii. It is convenient to keep cash reserves with the central bank. the central bank is called . Most central bank have separate departments to study the market trend and to formulate suitable polices in conformity with the changing circumstance. Act as adviser and agent of Govt. This is to enable the government to meet its current financial obligations in anticipation of its revenues iii. So we can say that.IDB etc. usually the central bank pays no interest. vi. because its votes commanded the greatest confidence and also because govt. ii. Broadly speaking. Maintain external debt: central bank is rendering a very useful service to the government by providing the letter with the necessary foreign exchange required to meet with the external debt services.

in other it is a duty imposed upon the central bank by low. It acts in this capacity mainly through its discounts operations. this is a logical step from the position of the bank as custodian of cash reserves of the commercial bank. Clearing and settlement: the central clearing function is performed by all central banks. In some countries. persuasion etc. the schedule and commercial banks list are given below: Private commercial banks Private Banks are the highest growth sector due to the dismal performances of government banks (above). settlements between them can be easily effected by means of debits and credits in the books of the central bank. borrowing facility.upon to function as the lender of last resort. There are many schedule banks which are listed in the central bank and they can get many advantages from the central bank like consultation. Since banks keep cash reserves with the central bank. iii. it is merely a matter of traditional or convenience. Here is the list – . They tend to offer better service and products.